40 Russell 3000 'Safer' Dividend Stocks For June

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Includes: AGNC, ANH, CIM, CLNY, CORR, CWEN, CWEN.A, CYS, DX, EARN, GEO, GLPI, GMRE, IVR, LADR, NLY, ORC, WMS
by: Fredrik Arnold

Summary

40 of 104 Russell 3000 Index stocks were deemed "safer" for dividends because they showed positive one-year returns and free cash flow yields greater than their dividend yields.

Broker target-estimated net gains for the top 10 "safer" dividend Russell 3000 dogs ranged from 11% to 53%.

Top 10 "safer" dividend Russell 3000 yields ranged from 10.21% to 14.63%. All are REITs, and their free cash flow yields ranged from 16.33% to 70.07%.

Total annual returns narrowed the "safer" list of 104 to 78 by removing stocks showing negative returns.

The 10 highest-yield "safer" dividend Russell 3000 Index stocks could produce 26.1% more gains from $5K invested in the lowest-priced five than from $5K in all 10.

Actionable Conclusions (1-10): Analysts Calculated Top Ten 'Safer' Dividend Russell 3000 Stocks Could Net 11% to 53% Gains By June, 2019

Two of the ten top yield "safer" Dividend Russell 3000 dogs (whose names are shaded in the chart above) were verified as being among the top ten gainers for the coming year based on analyst 1 year target prices. Thus the dog strategy for this group, as graded by analyst estimates, proved 20% accurate.

The following probable profit generating trades were flagged by Projections based on estimated dividend returns from $1000 invested in the thirty highest yielding stocks and their aggregate one year analyst median target prices, as reported by YCharts, to calculate the 2018-19 data points. Note: one year target prices by lone analysts were not applied. Ten probable profit-generating trades projected to June 8, 2019 were:

Colony NorthStar (CLNS) netted $533.26 based on dividends plus a median target price estimate from five analysts less broker fees. The Beta number showed this estimate subject to volatility 42% more than the market as a whole.

The GEO Group (GEO) netted $204.67, based on dividends plus a target price estimate from three analysts, minus broker fees. The Beta number showed this estimate subject to volatility 31% more than the market as a whole.

Global Medical REIT (GMRE) netted $173.18 based on a median target price estimate from five analysts, plus projected annual dividends less broker fees. The Beta number showed this estimate subject to volatility 1408% opposite the market as a whole.

NRG Yield (NYLD) netted $172.73 based on a median target estimate from six analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 70% more than the market as a whole.

Gaming and Leisure Properties (GLPI) netted $171.59 based on a median target price estimate from eleven analysts, plus projected annual dividends less broker fees. The Beta number showed this estimate subject to volatility 42% less than the market as a whole.

CorEnergy Infrastructure Trust (CORR) netted $167.60 based on dividends plus a median target price estimate from three analysts, less broker fees. The Beta number showed this estimate subject to volatility 88% more than the market as a whole.

Dynex Capital (DX) netted $159.57 based on a median target price set by four analysts, plus estimated dividends less broker fees. The Beta number showed this estimate subject to volatility 40% less than the market as a whole.

Ladder Capital (LADR) netted $123.04 based on estimates from seven analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 5% less than the market as a whole.

Anworth Mortgage Asset (ANH) netted $110.95 based on a mean target estimate from three analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 92% less than the market as a whole.

NRG Yield (NYLD.A) netted $110.30 based on estimates from six analysts, plus dividends less broker fees. No beta number was available for NYLD.A.

Average net gain in dividend and price was 19.27% on $10k invested as $1k in each of these ten "safer" dividend stocks. This gain estimate was subject to average volatility 62% opposite the market as a whole (thanks to GMRE's huge negative beta).

Actionable Conclusions (11): (Bear Alert) Brokers Projected One 'Safer' Dividend Russell 3000 Stock To Lose 7.35% By June, 2019

The probable losing trade revealed by YCharts to 2019 was:

New Media Investment 51 based on dividend and a median target price estimate from two analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 15% more than the market as a whole.

The Dividend Dogs Rule

The "dog" moniker was earned by stocks exhibiting three traits: (1) paying reliable, repeating dividends, (2) their prices fell to where (3) yield (dividend/price) grew higher than their peers. Thus, the highest yielding stocks in any collection became known as "dogs." More specifically, these are, in fact, best called, "underdogs."

Six of Eleven Sectors Deliver "Safer" Dividends To The Russell 3000 Index

The 40 "Safer" members of this Index represented just six of eleven sectors. They showed positive annual returns and adequate margins of cash to cover dividends by this screen as of June 8.

The "safer" divided Russell 3000 sector representation broke-out, thus: Real Estate (31); Industrials (3); Consumer Cyclical (2); Utilities (2); Financial Services (1); Consumer Defensive (1); Basic Materials (0); Communication Services (0); Energy (0); Healthcare (0); Technology (0).

The first sector shown in the above list composed the top ten "safer" dividend Russell 3000 team by yield.

40 of 104 Russell 3000 Firms Showed "Safer" Dividends

Periodic Safety Inspection

A previous article discussed attributes of 50 top yield constituents of the Russell 3000 Index selected from this master list of 104. You see grouped below the tinted list documenting 40 (out of those 104) that passed the dividend dog "safer" check with positive past-year returns and cash flow yield sufficient to cover their anticipated annual dividend yield. The margin of excess is shown in the bold face "Safety Margin" column. The total returns column screened out twenty-seven with sagging profits.

Financial priorities, however, are frequently redirected by boards of directors setting company policy cancelling or varying the payout of dividends to shareholders.

Note that many of these top "safer" Russell dividend payers have adjusted their dividends lower recently, including:

Orchid Island Capital (ORC) in July, 2015; February, 2018; April, 2018.

Ellington Residential (EARN) in December, 2017;

CYS Capital (CYS) in June, 2016 and April 2018, among others.

This article contends that adequate cash flow is strong justification for a company to sustain annual dividend increases to shareholders.

Three additional columns of financial data, listed after the Safety Margin figures above, reveal payout ratios (lower is better), total annual returns, dividend growth levels, and p.e ratios for each stock. This data is provided to reach beyond yield to select reliable payout stocks. Positive results in those first five columns after the dividend ratio sends a remarkably solid financial signal.

To quantify top dog rankings, analyst mean price target estimates provide a "market sentiment" gauge of upside potential. Added to the simple high yield "dog" metric, analyst mean price target estimates became another tool to dig out bargains.

Yield Metrics Revealed Nice Bargains From Lowest Priced Top Ten Yielding "Safer" Dividend Russell 3000 Index Stocks For June

Ten "Safer" Russell 3000 firms with the biggest yields June 8 per YCharts data ranked themselves by yield as follows:

Actionable Conclusions: Analysts Predicted 5 Lowest Priced, of Ten "Safer" Dividend Russell 3000 Dogs, Will (11) Deliver 10.88% vs. (12) 8.63% By All 10 Come June 2019

$5000 invested as $1k in each of the five lowest priced stocks in the "safer" Dividend Russell 3000 Index 10 by yield were determined by analyst 1 year targets to deliver 26.1% more gain than $5,000 invested as $.5k in all ten. The second lowest priced "safer" Dividend Russell 3000 dog, Dynex Capital (DX) showed the best analyst augured net gain of 15.96% per their target estimates.

Lowest priced five "safer" Dividend Russell 3000 Index stocks as of June 8 were: Anworth Mortgage Asset (ANH); Dynex Capital (DX); CYS Investments (CYS); Orchid Island Capital (ORC); Annaly Capital Management (NLY), with prices ranging from $5.04 to $10.54.

Higher priced five "Safer" Dividend Russell 3000 Index stocks as of June 8 were: Western Asset Mortgage (WMS); Ellington Residential (EARN); Invesco Mortgage Capital (IVR); Chimera Investment (CIM); AGNC Investment (AGNC), with prices ranging from $10.74 to $18.98. The low price little Russell 3000 stocks lead the way for June.

This distinction between five low priced dividend dogs and the general field of ten reflects the "basic method" Michael B. O'Higgins employed for beating the Dow. The added scale of projected gains based on analyst targets contributed a unique element of "market sentiment" gauging upside potential. It provided a here and now equivalent of waiting a year to find out what might happen in the market. Its also the work analysts got paid big bucks to do.

Caution is advised, however, as analysts are historically 20% to 80% accurate on the direction of change and about 0% to 20% accurate on the degree of change.

The net gain estimates mentioned above did not factor-in any foreign or domestic tax problems resulting from distributions. Consult your tax advisor regarding the source and consequences of "dividends" from any investment.

See my instablog for specific instructions about how to best apply the dividend dog data featured in this article, this glossary instablog to interpret my abbreviated headings, and this instablog to aid your safe investing. -- Fredrik Arnold

Stocks listed above were suggested only as possible starting points for your safest "Safer" Dividend Russell 3000 Index dog dividend stock research process. These were not recommendations.

Disclaimer: This article is for informational and educational purposes only and should not be construed to constitute investment advice. Nothing contained herein shall constitute a solicitation, recommendation or endorsement to buy or sell any security. Prices and returns on equities in this article except as noted are listed without consideration of fees, commissions, taxes, penalties, or interest payable due to purchasing, holding, or selling same.

Graphs and charts were compiled by Rydlun & Co., LLC from data derived from YCharts, Yahoo Finance; analyst mean target price by Thomson/First Call from Yahoo Finance. Dog photo taken from pets4homes.co.uk.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.